How to Invest $50,000 Wisely

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Updated on Thursday, December 17, 2020

There’s no one right way to invest $50,000 — the best investment strategy for you will ultimately depend on your own unique financial situation. Regardless, investing your money can be a wise choice for your financial future.

Let’s take a look at six smart ways to invest 50,000, and which investment style might be right for you.

6 smart ways to invest $50,000

Here are some options for investing your funds. Keep in mind that instead of investing the full $50,000 all in one place, it may be wise to consider a healthy mix of investments.

1. Create an emergency fund

An emergency fund is a great way to safeguard against the unexpected. Everyone faces unexpected expenses at some point in their life — whether it’s job loss or an unanticipated medical expense — so it’s always smart to be prepared. In general, experts recommend having at least three to six months’ worth of living expenses in your emergency fund.

If you can, house your emergency fund in an account that won’t charge fees for withdrawals. Most of the best high-yield savings accounts don’t charge a monthly fee or fees for transfers. It’s important to have quick access to cash for anything life throws your way without further breaking the bank with fees.

2. Max out your retirement options

If you ever plan to stop working, then you’ll need to maximize your retirement savings — especially if you have available cash to invest. Luckily, there are numerous options when it comes to retirement savings.

If your employer offers a 401(k), you should contribute as much as you’re allowed. Other common types of employer-sponsored retirement accounts include 403(b), 457 and government thrift savings plans. Some employers will contribute matched amounts to your retirement account, which you’ll want to maximize if it’s available.

If your employer doesn’t offer a retirement savings plan — or if you’ve already maxed out your employer-sponsored plan — there are other options available. An IRA (individual retirement account) allows you to deduct the investments you make from your income and let your funds grow tax-free until you withdraw them. A Roth IRA is very similar to a traditional IRA, except you contribute after-tax dollars instead of pre-tax dollars. This might be a good option for those who expect to be a higher tax bracket when they retire than they are now.

3. Invest in the stock market

If your retirement accounts are maxed out, you may want to start investing in other ways. Not sure where to start? ETFs and mutual funds are a few good starting points, as they allow for automatic diversification.

Investing in a low-cost exchange-traded fund (ETF) could be a good option if you want fewer fees and more flexibility with your investments. ETFs are traded like stocks, so you’ll have the ability to get started with just one share. With mutual funds, you’ll buy into a fund as opposed to buying a share, so the minimum investment required tends to be higher.

4. Invest $50k into a 529 account

If you have children, investing $50,000 into a 529 account may be a solid plan now if you intend to pay for your child’s higher education later on. According to the College Board, the average annual cost of college tuition and fees was between $10,560 (for public in-state schools) and $37,650 (for private schools) for the 2020-21 academic school year.

A 529 plan can help cover your child’s education expenses, from private K-12 to graduate school, by allowing you to invest in mutual funds and other investment vehicles through the plan. Even better, 529 funds can grow tax-free, and any withdrawals you take for qualified education expenses are tax-free as well.

5. Get into real estate investing

Investing in real estate is another great way to diversify your portfolio. While $50,000 may not be enough to buy a property outright, it could certainly contribute to a down payment.

You can also put your money toward real estate in less direct ways, like adding real estate investment trusts (REITs) to your portfolio. In addition, you can find mutual funds and ETFs that focus on REITs, or turn to robo-advisors like Yieldstreet that get you invested in alternative assets.

6. Build a CD ladder

With $50,000, you can build a pretty sturdy CD ladder. This is where you open a few certificates of deposit at the same time, each with a longer maturity timeline. That way, you have a CD maturing every few months (or years, depending on how you build it), which results in steady income or further extra savings.

To get the most bang for your 50,000 bucks, look for high-yield CDs, which will grow your money more efficiently and make setting aside your money in an untouchable account worth your while.

What to consider before you start investing

1. What’s your preferred investing style?

There are a few ways you can go about investing your money. Each approach has its benefits and angles, so you’ll want to figure out what’s best for your situation early on.

  • Do it yourself: If you choose DIY investing, it’s important to map out your investment strategy with careful research and planning. After you’re comfortable with your plan, you’ll need to open a brokerage account to purchase investments. The obvious advantage to this tactic is that it’s typically less expensive than many other options. However, you need to be comfortable with making large financial moves without any professional assistance, as well as doing the legwork of researching.
  • Robo-advisor: Robo-advisors vary widely based on the brokerage firm, but in general they offer portfolio management based on an algorithm that’s tailored to your investment interests. Plus, many robo-advisors charge lower fees than traditional financial advisors and have lower minimum investment requirements. Of course, you’ll also get less personalization and portfolio customization, as you’ll be working with an online platform as opposed to a dedicated human advisor.
  • Traditional financial advisor: It may be a good idea to hire a financial advisor if the idea of managing your money without help is scary. A professional will help you to get the most out of your investments with minimal effort on your part. If you choose this route, make sure you research your future financial advisor carefully to ensure you end up working with someone who aligns with your needs.

2. What are your immediate financial needs?

Once you know how you’ll start investing — whether DIY or with some help — you can get down to the facts and factors that will help you build your financial plan. Before you sink that $50,000 into new investments, make sure other areas of your finances are taken care of first. You’ll want to prioritize paying down debts or any outstanding bills you might have.

3. What is your risk tolerance and investment timeline?

That $50,000 is no small sum — you’re going to want to make it work for you as best as it can. To do that, you’ll want to figure out your time horizon and how much risk you can afford to take on.

If you’re hoping to cash out in the next couple of years, you’ll likely want to avoid too much risk in the event of a near-term downturn. If, however, you have decades until your goal, that gives you the flexibility to put your funds in riskier investments for now, as you’ll have more time to ride out any market ups and downs.

4. How much will investment fees cut into your bottom line?

No one wants to pay fees — especially when they diminish your earnings. Keep an eye out for trading costs, particularly if you’re DIY-ing your portfolio. When working with robo-advisors and professionals, you still have to be mindful of trading costs, but you’ll also want to look out for commissions and any service fees your management company might charge.